In an economy with distortionary taxes on labor, can subsidies on day care, financed by an increase in taxes, raise welfare by encouraging women with small children to work? We show, within a heterogeneous-agent life-cycle framework, that the Ramsey optimal policy consists in equalizing...

This paper studies the business-cycle variation in higher-order (labor) income risk--that is, risks that are captured by moments higher than the variance. We examine the extent to which such risks can be smoothed within households or with government social insurance and tax policies. We use...

Abstract Many studies show that individuals do not perfectly smooth consumption at older ages. We argue that an important explanation is that health status declines with age, making consumption at older ages less desirable. We incorporate health status into a standard incomplete markets...